The Japanese arm of Microsoft's Xbox division is to see personnel reductions across the board, as the console continues to struggle in the Far East - but the company denies any scaling back of the Xbox operation itself in the territory.

The headcount of the 200-person strong division will be cut by 34, with reductions affecting personnel in both marketing and production. The company claims that these changes are being made to improve the profitability of the business.

It's not clear whether the departments affected are purely related to the sales, distribution and promotion of Xbox in Japan, or whether development personnel will also be hit. The main title created by Microsoft's Japanese division, Kakuto Chojin, has been withdrawn from release overseas - due to potentially offensive religious content, if Microsoft is to be believed, although most commentators suspect that the critical and commercial pasting the game received in Japan may have something to do with the decision as well.

To date, Tecmo's Dead or Alive and Dead or Alive Xtreme Beach Volleyball titles remain the only real success stories on the Xbox in Japan. The console has not yet reached 400,000 units sold in the territory, according to figures quoted by the Nihon Keizai Shimbun newspaper today.

Although Microsoft strongly denies that it is terminating or scaling back its Xbox operations in the Far East, this is almost certainly how the story will be interpreted by analysts - with the scaling back of the unsuccessful division being seen as a tacit admission that Xbox is dead in the water in Japan.